Britannia Radio

This is an astonishing ‘breaking-of-ranks’ inside the Monetary Policy 
Committee (MPC) and will cause Stering to fall further and faster. It 
has fallen by 16% against the euro since the Northern Rock fiasco 
began which means that everything we buy from Europe and holidays 
taken there are that much more expensive - this adds to inflation.

Other sources commenting on the 10.5% fall in house prices over the 
year say that the house market will not bottom out till it has fallen 
by 30% - so there’s a long way to go!
 
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INDEPENDENT   29.8.08
Warning: Cut rates or job losses will soar

Unemployment set to hit 2m and house prices will fall 30%, Bank of 
England expert predicts
    By Sean O'Grady, Economics Editor

In an unprecedented move, a member of the Bank of England's Monetary 
Policy Committee (MPC) has criticised the Bank for complacency and 
"wishful thinking", predicting that two million people will be out of 
work by Christmas and that house prices will fall by more than 30 per 
cent.

David Blanchflower, who has consistently warned of the perils facing 
the economy, attacked the Bank's current thinking. "To sit and worry 
about inflation expectations, rather than worry about the fact that 
the economy is going to go into a recession, seems to be misguided," 
he said.

"People have to start to respond to the fact that we are in a 
recession and the danger is we'll be in a very serious and long-
lasting recession unless we do something. This is a call to action." 
He demanded a substantial cut in interest rates and said the Bank's 
latest forecast of "broadly flat" growth "certainly has a great deal 
of wishful thinking attached to it".

Mr Blanchflower's unemployment forecast would mean 330,000 more 
people losing their jobs by the end of the year – banks and 
construction firms being the first to lay staff off, he believes. The 
MPC – charged by the Government with the task of setting interest 
rates – meets next week to fix rates; few expect an immediate cut, 
despite the warning.

Mr Blanchflower is an external member of the MPC, which is chaired by 
the Governor of the Bank of England, Mervyn King.

Intellectual tensions between the MPC's membership have become more 
apparent in recent months, with the emergence of a three-way split 
revealed in the MPC's minutes. One "hawk", Tim Besley, also an 
external member, has recently been voting for a quarter-percentage-
point increase in rates, with Mr Blanchflower, the so-called "arch-
dove", habitually opting for a cut of the same size, or more.

A majority in the MPC has voted for no change since May, torn between 
fear of accelerating inflation and a slump that would see price rises 
way below the official target of 2 per cent a year. The Bank's rate 
stands at 5 per cent, having been cut by 0.25 per cent in April.

The Bank of England maintains that all MPC members are supposed to 
put forward an independently formed view eloquently and vigorously, 
as equals.

However, Mr Blanchflower's passionate rebelliousness and criticism of 
fellow MPC members may not be welcomed in the Governor's parlour. "I 
feel a weight on my shoulders," Mr Blanchflower told Reuters. "I feel 
that things I have been fearful about have come to pass and I have 
actually been pretty accurate in what's coming and I have failed to 
convince the others of what is appropriate.

"People need to understand that sometimes you will have to focus on 
the timing of issues. I think people have become complacent and they 
have not understood what would happen if an economy starts to slow 
fast, if firms start to close. What we have now is a turning point in 
many ways – certainly you might think of it as a paradigm shift. We 
have a global financial crisis, an oil shock coming [and] people with 
little experience of what is really going on."

Sterling fell on reports of Mr Blanchflower's comments, as traders 
marked up the chances of the Bank reducing rates sooner rather than 
later. A quarter-point in November seems to be the most likely 
outcome, later than Mr Blanchflower urges but presentationally easier 
for the Bank, given that the "spike" in inflation at 5 per cent or 
more should by then be over.

On the day that the Nationwide Building Society reported that 
property prices had fallen by more than 10 per cent a year for the 
first time since the crash of the early 1990s, Mr Blanchflower warned 
that worse was to come. "I thought 30 per cent was the potential fall 
we could see," he said. "I think that might even now be optimistic. I 
think 30 per cent does look a fairly optimistic number and markets 
are now coming around to that view." Such a house-price fall would 
plunge around two million owner-occupiers into negative equity.
====================
TELEGRAPH  Business News  29.8.08
David Blanchflower may call on Bank of England for half point 
interest rate cut
    By Angela Monaghan

David Blanchflower, a member of the Bank of England's Monetary Policy 
Committee, has hinted that he may push for a half percentage point 
cut in interest rates at the next meeting of the MPC.

Mr Blanchflower has been the MPC's most consistent advocate of 
slashing rates, calling for a quarter rate cut at the last four 
meetings of the committee.

If the British economy is to avoid falling into a deep and prolonged 
recession, big cuts were now needed, he said in an interview with 
Reuters.

"I've obviously voted on quite a number of occasions now for small 
cuts but we need to act and we probably need to act in larger amounts 
than that. We need to actually get ahead of the game and it appears 
that we are now behind."


Giving a very pessimistic view of where the UK stands, he said that 
unemployment could soon rise to 2m as construction workers and banks 
shed jobs, and that his own estimate of 30pc house price falls was 
now looking optimistic.

The gloomy outlook was in contrast to the US, where stocks rose on 
the back of revised figures showing that the American economy was in 
far better condition in the Spring than had been thought.
The Commerce Department adjusted its annualised estimate for second 
quarter GDP growth from the 1.9pc announced in July to 3.3pc. The Dow 
Jones industrial average rose 212.70 points to 11,715.20.

In the UK, most economists are betting that the Bank will have to cut 
interest rates in the near future as it tries to limit the effects of 
the slowdown.

Traders on the interest rates futures market now believe that there 
is a 75pc chance that the Bank will cut interest rates by 25 basis 
points or more by the end of the year. Just a week ago, traders put 
the chances of a cut at 60pc.

The change follows a raft of gloomy economic data that has raised 
fears that the UK economy is slipping into recession.

"People are starting to price in deeper, and earlier, cuts," said 
Paul Robson, currency strategist at Royal Bank of Scotland.

The expectation of rate cuts pushed the pound down to a near 12-year 
low against a basket of currencies yesterday. The sterling trade 
weighted index closed at 89.7, down from Wednesday's close of 90.2. 
The pound fell against the dollar to $1.8292 when the market closed, 
down from $1.8383, and it was also weaker against the euro at 0.8048 
compared with Wednesday's close of 0.8001.

Steven Barrow, currency strategist at Standard Bank, told Telegraph 
TV: "When the markets look at which central bank is going to be the 
next one to reduce interest rates, they're probably looking to the 
Bank of England before the Federal Reserve in the US, before the 
European Central Bank, and certainly before the Bank of Japan.

"So maybe that's why sterling is in the firing line because the 
interest rate advantage that has been there in sterling might not be 
there much longer."

The pound's plight was not helped by Nationwide's latest survey, 
which said that house prices in the UK fell 10.5pc in the past year. 
That is the first time prices have dropped by double figures since 1990.

The CBI added to the gloom by reporting that British retail sales 
plunged to a 25-year low in August as soaring food and fuel prices 
and the housing slump discouraged shoppers.

=====================
OTHER ECONOMIC HEADLINES    29.8.08

Telegraph
== Regus to join tax exodus from Britain
Regus, the world's biggest provider of serviced office space, is 
today expected to say that it plans to quit Britain because of the 
uncompetitive tax regime, taking the toll of corporate departures 
this week to three. - - - following hard on the heels of  asset 
manager Henderson Group and engineering company Charter - both of 
which are moving to Dublin

Independent
==Bradford & Bingley crashes into the red
Beleaguered lender Bradford & Bingley today said it had crashed into 
the red in the first half of 2008, after credit crunch losses and 
rising bad debts.
==Retailers suffer worst month in quarter of a century

Times
==Sterling takes pounding on rate cut hopes
Pound slumps to near record low against the euro and its worst for 12-
years against a basket of major currencies

Financial Times
==Inflation fears steer ECB away from rate cuts
European Central Bank policymakers signal fresh alarm over the 
outlook for eurozone inflation even as German data indicate that 
headline inflation rates have fallen from record highs